Weekly News | 17th to 23rd April 2022

Codo Advisory keeps an eye for you on the latest events and trends in climate finance and corporate sustainability, in the world and in Japan. Here’s what caught our attention last week.

World | BlackRock expects an investors’ rush for energy transition due to Ukraine war

• Countries around the world are readjusting their energy policy in the context of Russo-Ukrainian conflict. As a result, the war would accelerate the shift toward clean sources of energy, analyzes the world largest asset manager’s chief executive Larry Fink.
• BlackRock expects a long-term trend for growing opportunities in the sustainability field, including energy, technologies, and infrastructures. Larry Fink thus warns that investors should not be distracted by the temporary surge in demand for fossil fuels.
• More about this story: BNN Bloomberg

World | Why virtual assets for carbon offsets are source of concerns for climate experts?

• While enthusiasm is growing worldwide about the use of blockchain technology to contribute to the greening of the economy, the digitalization of carbon offsets may lead to new difficulties if not properly implemented.
• Crypto traders are rushing to develop products that would allow them to capitalize on the growing needs for solutions to support the green transition. But experts reporting to the reporting to the Financial Times are worried that the combination of digital assets and carbon offsets, two unregulated markets, may result into the next  collateralized debt instrument, with zero visibility on what investors are actually buying.

US | Climate shareholder proposals backed by New-York State pension fund

• The New York State Common Retirement Fund ($280bn) made a call last week to the world’s largest lenders’ shareholders, inviting them to back climate resolutions filed at Bank of America, Goldman Sachs and JP Morgan Chase.
• Proposals are asking these major banks to align their lending policies with net-zero targets, by for example cutting funding of fossil fuels supply.
• More about this story: Financial Times, Environmental Finance

Codo’s comment: As illustrated by other stories in our previous weekly news summaries, climate resolutions are increasingly used by shareholders to put pressure on firms whose climate plans are not ambitious or clear enough. After Europe and America, this dynamic starts to move to Asia as well.

Asia | Fourfold increase of Asian funding to fight pollution

• According to a finance think-thank, Asian lending to pollution-fighting projects totaled to $56 billion in 2021, a fourfold increase compared to 2020. Until then the global leader, Europe is now second after Asia in this field.
• A large part of this funding comes from governmental programs targeted at easing sustainability-linked loans and fastening the renewable energy transition. Yet, a remaining issue for these countries is the lack of expertise in screening for greenwashing and assessing the profitability of these projects.
• Asia still accounts for half of global GHG emissions. To align with the Paris agreement’s goals, it has been estimated that the region needs about the double amount of investments than Europe until 2050.
• More about this story: Nikkei Asia

China | Fraud in the world’s biggest carbon market

• China’s carbon market as it is designed now, is far from contributing to reduce its carbon emissions. Not only are its prices low, making the whole thing inefficient in putting pressure on polluting companies, but verification and data production processes lack clarity, which opens the door to falsification and other kinds of negligence.
• China plans for its carbon market to be fully effective by the end of the decade. Yet data fraud is likely to delay this process, reports an analyst to Bloomberg. Aware of the issue, responsible governmental agencies “scolded” the consulting firms that helped the falsification of data, but at the root of the issue is the lack of strict regulation.
• For now, data verifiers have no incentive to be more diligent, as no penalty is truthfully deterrent. While pledges have been made towards “zero-tolerance” on such violations, a strong regulatory structure will not suffice to solve these issues, because of a bad top-design of the whole structure that needs to be addressed first.

Codo’s comment: Carbon pricing, including carbon markets, is recognized as one of the most efficient way to redirect financial flows towards low-carbon activities. In Asia, South Korea introduced the first regulated carbon market in 2015, followed by China in 2021. Japan has not yet implemented a mandatory carbon market; instead, it announced an upcoming voluntary system, which effects on actual decarbonization are yet to be proven.

Australia | Investors waiting for Australian government to bet on renewables

• Australia already hosts many of the most ambitious clean energy ventures, with a total worth exceeding $188bn. These have the potential to transform a country that is to this day one of the largest fossil fuel exporters into a renewable energy leader.
• Yet the pro-fossil government is not sending encouraging signals to investors and most of the clean energy projects are still waiting for funding. Currently, Australia does not have a carbon market nor a solid plan for renewables.
• While Australia is well positioned to become a major clean energy, major local stakeholders, such as the Australia’s pension sector, are still not making any decisive move towards sustainable energy projects.
• More about this story: Financial Times

Japan | Japanese chemical giant to improve climate disclosure in response to EU rules

• Asahi Kasei announced it will disclose information about half of its resin products’ emissions from May, as a response to stricter regulation standards coming from Europe.
• The EU is planning a ban on imports of components for electric vehicles with excessive emissions from 2027. Japanese companies, in particular in the chemical industry, are late on their European counterparts when it comes to disclosure of GHG emissions, which will affect their competitiveness in Europe in the years to come.
• Facing an increasingly stronger global trend toward decarbonization, CO2 emissions reduction is becoming a new key to attracting customers. Asahi Kasei plans to disclose emissions over the entire production process for the listed products, which account for 95% of its total emissions, reports Nikkei Asia.

Codo’s comment: From the carbon border tax to the EU green taxonomy and the recently proposed environmental VAT adjustment (see our previous weekly news), regulations implemented in Europe affect not only European companies, but also Japanese companies present in the European market or in supply chains of European companies. The war in Ukraine should push the EU to confirm and accelerate its shift towards a decarbonized economy.